How did your investments do last year? It’s a good question to ask, especially if you’re relying on that money for say, retirement or your kids’ education. The problem is, most brokerages, mutual fund companies and financial advisors won’t include this information on your annual statement. Instead, you’ll see a nice fat number that claims to show how much your portfolio has grown. That number is worthless, however, since it typically includes your contributions throughout the year (imagine looking at your bank balance today and ignoring all the deposits and withdrawals you made to get it there).
What you really need to know is something called your personal rate of return – a number that shows you how your investments have grown (or not) and whether you need to change things up to meet your investment goals (i.e., will you be eating cat food from a can when you retire or will you have to work until you’re 95?).
You’ll have to go after this number on your own however – a lot of advisors and investment companies don’t give it to you because they want you to think your portfolio is growing because of all those great investments they put you in (not just because you keep putting money in).
Here’s what you need to calculate your own personal rate of return for a single year:
- Your ending balance from the previous year.
- Your ending balance for the year for which you’re calculating your personal rate of return.
- The exact amount you invested during that year along with the exact months in which you made the investments.
Armed with that information you have a couple of options. You can calculate it yourself (more information on that here) or you can use this excellent personal rate of return calculator from Weigh House Investor Services and let it do the work for you.
While it would be dandy if mutual fund companies and advisors just gave us this information on their own, they don’t. But that doesn’t mean you can’t take charge of your own personal rate of return by finding out what it is. Once you have it, talk to your advisor about whether or not that percentage is going to help you reach your goals and whether or not you need to make a change in your investments.
Money expert Caroline Cakebread has been writing for Chatelaine.com since 2006. She is a recovering academic and the mother of two small kids. She lives in Toronto where she writes and reads about all things financial. Follow Caroline at Twitter.com/ccakebread.